Global CIO: Oracle Upside Earns Outperform Rating From Wells Fargo

"Clearly this is the area of most controversy as investors try to ascertain the potential integration risk versus the opportunity to win more data center spend. We are very comfortable that Oracle can continue its best in class execution and grow operating margins successfully."

Without question, the coming 10 days will represent some of the most important in the company's history in terms of using Thursday's earnings report and next week's Oracle Open World show to demonstrate that the Sun acquisition wasn't just an exercise in buying revenue but was instead a highly strategic—and visionary—move by Oracle to extend its relevance beyond enterprise software and into purpose-built systems such as Exadata and beyond.

Mark Hurd, of course, won't have any impact on the numbers Oracle reports on Thursday, but he'll be The Guy responsible from here on out. Many commentators are speculating that Ellison hired Hurd to hack away further at redundant positions and unproductive positions at Sun, but I don't buy that.

And I don't buy it because Oracle already has a top executive who's every bit as talented as Hurd is in cutting costs and squeezing headcount down to appropriate levels. In fact, I could argue that with the dozens of acquisitions Oracle has made and Catz has helped lead over the past six years, she might well have more expertise in those areas than Hurd does.

I think Hurd's going to devote his time to forging a broader hardware strategy for Oracle that encompasses Sun's products but extends beyond them as well, and that means Ellison will be leaning on Hurd's experience to recommend and execute additional hardware acquisitions.

Wells Fargo's Maynard is certainly a believer: "On a cash-flow basis our valuation range assumes 13x our FY12 cash flow per share estimate of $2.26. Based on this multiple the shares have approximately 20% upside to the midpoint of our valuation range over the next twelve months," he writes.

"We believe Oracle is one of the best positioned enterprise systems players and is poised to garner an outsized share of profits in the transformation of the data center."

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